What happened

Shares of African e-commerce company Jumia Technologies (JMIA -2.96%) soared 34.1% in August, according to data provided by S&P Global Market Intelligence. The stock was actually up closer to 75% early in the month after the company reported financial results for the second quarter of 2022. But it pulled back some in the back half of the month as the market also declined.

So what

On Aug. 10, Jumia reported Q2 results that showed growth in important areas. Quarterly active customers were up nearly 25% year over year to 3.4 million, orders on its platform were up 35% to 10.3 million, and volume for merchandise and payments were both up as well.

These metrics are important for Jumia's business because they're good indicators for adoption -- it's still early for e-commerce in Africa. Another good indicator is merchandise value per order. A smaller per-order value suggests that people are using the platform more for regular everyday purchases rather than large one-time purchases. And in that regard, Jumia improved in this area as well with value per order decreasing compared to last year.

Despite these promising metrics for its adoption, it seems the market wasn't celebrating these things as much as it was celebrating something Jumia's management said in its Q2 press release. Management said, "We believe we are now past the peak of quarterly Adjusted EBITDA [earnings before interest, taxes, depreciation, and amortization] losses reached in the fourth quarter of 2021 and intend to redouble our efforts to reach profitability."

To management's point, Jumia has improved its adjusted EBITDA on an absolute basis since Q4, and on a percentage basis since the first quarter, as the chart shows.

Quarter Revenue Adjusted EBITDA Loss Adjusted EBITDA Margin
Q4 2021 $62.0 million $70.0 million (113%)
Q1 2022 $47.6 million $55.3 million (116%)
Q2 2022 $57.3 million $57.2 million (99.8%)

Source: Filings from Jumia Technologies. Chart by author.

With it down roughly 90% from its peak, many investors had given up on Jumia stock. But by saying the company is past peak losses, it sounds like management is saying the worst is over, giving investors reason to hope again.

Now what

In my opinion, by prioritizing profitability, Jumia is entering a difficult chapter of its story because of where it is in its business cycle. As we noted with Q2 numbers, there are 3.4 million active Jumia users, which is a really small base. Shareholders undoubtedly want to see the company grow much, much more from here. And this typically means spending to get more users.

It seems Jumia is going about spending cuts the right way. In Q2, sales and marketing expenses were up 30% year over year, technology and content spend was up over 70%, and fulfillment expenses increased 46%. The company's operational improvements came from discipline on spending for corporate overhead, which was unchanged from the same quarter of 2021.

Jumia still has a long way to go and it won't be easy. But Q2 results were good, and recent moves appear to be in the best interests of its long-term health. Therefore, it makes sense why Jumia stock beat the market in August.